WesternGeco's decision to idle most of its North American land crews could be the shot heard 'round the world.

On the surface, WesternGeco's October announcement to shut down its Lower 48 and Canadian land crews may seem like little more than a necessary cost-cutting measure.

After all, land seismic is a tough place to make a living. It's much more expensive than marine, and the multiclient model has never worked quite as well on land, meaning that it's a contract market and therefore subject to the exploration needs of the oil industry.

But it seems to herald so much more. A move by the world's largest seismic company to abandon the conventional 3-D seismic business model, a sign that seismic contractors are going to start taking their fates into their own hands in a more aggressive fashion, and perhaps even a warning shot over the heads of an oil industry that has been content to watch the geophysical segment sink into a financial quagmire.
Conventional seismic operations, states WesternGeco's announcement, "have been severely impacted by commodity pricing, excess risk and difficult terms over the past 10 years. While WesternGeco will remain active in its defined land and marine exploration sectors, the company is accelerating its move toward the production side of the E&P business, providing comprehensive seismic-based reservoir information solutions to the engineering and production asset teams."

Do oil companies want geophysical contractors involved in the production side of their business? Apparently they're beginning to see the rationale of doing so. While a Lehman Brothers report stated that most of WesternGeco's business is still generated from land and marine 3-D seismic, not 4-D, "which is still in its infancy," Ken Williamson, vice president of marketing for WesternGeco, said that acceptance is rapidly growing.

"It's become almost routine in the UK and the North Sea," Williamson said. "The majority of our seismic work in the North Sea has been 4-D oriented."

As far as being masters of their own fate, WesternGeco's announcement hinted that company officials are sick and tired of letting the oil and gas companies call the shots. President Gary Jones was quoted as saying, "The action we've taken is an inevitable result of the high-risk, no-return state of affairs in the seismic industry... This move is another step in our long-term commitment to sound business practices, including shutting down losing operations and exiting markets where reasonable terms and conditions do not prevail."

In other words, geophysical contractors are tired of taking on so much contractual risk. Over the years their clients have pushed more of the risk, including weather delays and permitting snags, onto their shoulders, threatening to take their business elsewhere if the terms are not acceptable.

"We're not saying we're exiting the US land business for good," Williamson added. "We just think right now that the prices, terms and conditions that we have to operate under are such that we can't make a short- or medium-term economic case for maintaining a presence in this region. We're not geographically restricting ourselves, but right now that's not a place that we want to operate."

Jones also left the door open for future business in the region. "Given fair compensation and acceptable terms, our services are available to everyone," he stated in the announcement.

Of course, geophysical contractors have attempted to dilute their dependence on the oil companies in the past, most notably through the advent of the multiclient business model. Much has been written about this, most of it not good, but the basic idea is sound. The multiclient model allows a seismic company to shoot what it wants, where it wants, when it wants, and to own that data itself, licensing it as many times as it can to as many players as it can. In the late 1990s, when real estate in the deepwater Gulf of Mexico was becoming pricier by the minute, multiclient seismic data added a lot of cash to a lot of balance sheets. But once clients realized they could get different versions of the same data, the price per square kilometer began to drop, and once they realized they could reprocess older data rather than acquire or license new data, it cratered.

"A huge amount of multiclient data has been generated, and although there's been a recovery in oil price, this global multiclient library expansion has generated a large backlog of prospect leads," Williamson said. "A contract market recovery will only gain momentum after this backlog has been worked through, and we expect this recovery to have a strong production/reservoir bias."

So is this a warning shot, or even the first salvo of a drawn-out struggle for seismic contractors to retain some degree of profitability? Apparently WesternGeco, at least, no longer wants to do business where it doesn't feel welcome.

"We will focus on customers and geographical areas where the value we provide is recognized," Jones stated.

It remains to be seen whether WesternGeco's competitors will follow suit. After the proposed merger between PGS and Veritas DGC was tabled, many pundits feared that the industry was in such dire straits that nothing short of drastic solutions would halt its dissolution. Some see WesternGeco's plans as a step in the right direction.

Jim Wicklund, writing for Banc of America Securities, commented that Jones used the term "deconstruction" when discussing a needed transformation at WesternGeco. "Anytime a management recognizes a problem and attempts to correct it, that is a positive effort," Wicklund wrote, adding that the
company would focus on the development and deployment of its Q-Reservoir suite of integrated solutions while "deconstructing" its traditional seismic business. "Western has long been one of the most respected service companies in the industry and one of the best operated," he added. "This is not so much an indictment of management efforts as a shift in the business model of the industry."

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